Goldman, J.P. Morgan lesson: bigger is better

Fed’s low-rate policy pressures loan margins; Goldman profit surges

SAN FRANCISCO (MarketWatch) — Bigger is better when it comes to banks. That, at least, is what investors are learning from earnings reports from J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and others.

As low interest rates from the Federal Reserve apply greater pressure to financial institutions’ loan margins, the big banks are getting by with having a diverse presence in other areas, like investment banking.

Net interest margins are the difference between what the bank makes on lending money to customers and what they pay out to depositors and to creditors on their own borrowings.

Bank earnings this season have been “goodish,” Bush said, but it really depends on whether the firm’s businesses are spread out enough to balance trends. “If you’re in the asset management space, it’s not a great place, but if you’re J.P. Morgan, you’re okay.”

Shares of Bank of New York Mellon Corp.
BK, -1.32%
were getting squeezed Wednesday like their net interest margins. The stock was down 2.4% in recent trading after it reported that NIM declined to 1.09% from 1.27% in the fourth quarter. Read more on Bank of New York Mellon earnings.

Goldman Sachs
GS, -0.59%
hit it out of the park on fourth-quarter earnings and shares were up nearly 4%. The firm soundly beating Wall Street estimates with a profit of $5.60 a share on revenue of $9.24 billion with strong gains in debt and equity underwriting as well as financial advisory fees. Read more on Goldman Sachs results.

J.P. Morgan Chase
JPM, -0.68%
on the other hand, surpassed Wall Street consensus estimates on the bottom line but not the top, reporting fourth-quarter results of $1.39 a share on revenue of $24.38 billion. The bank benefitted from improved credit quality, lower credit-loss provisions, and a doubling in investment banking revenue from the year ago period. Shares were up 0.4% in recent activity. Read more on J.P. Morgan Chase earnings.

Larger banks are also poised to get more freedom from the Fed regarding dividend hikes and share buybacks in 2013. Last week, several banks submitted capital plans to the Fed for stress testing and analysts at Keefe, Bruyette & Woods expect good results and big dividend boosts for banks like Citi and B. of A. Read more on dividend, buyback estimates for big banks.

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